Event-study methodology under conditions of event-induced variance

• Main Authors: BOEHMER, Ekkehart, MASUMECI, Jim, POULSEN, Annette B.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1991
• Subjects: Business; Finance and Financial Management; Management Sciences and Quantitative Methods
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4666; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5665/viewcontent/event_variance_pv_1991.pdf
• Institution: Singapore Management University

Many authors have identified the hazards of ignoring event-induced variance in event studies. To determine the practical extent of the problem, we simulate an event with stochastic effects. We find that when an event causes even minor increases in variance, the most commonly-used methods reject the...